It’s a stock that’s being promoted by either shareholders or by the company itself. Sometimes they would even have paid promoters promoting them to increase their price.

Why would they want to do this so called “pump and dump?”

It’s pretty simple!

They promote the stock which they currently own some shares from. Once the price has increased to where they would want it, then they sell all the shares.

Those who buy when the price has reached its peak think that they will make profits, but that’s when the price plummets on them, losing them their money.

Promoting the stock is the pump, selling them once the price reaches a reasonable high is the dump. So they call this process “Pump and dump scheme.”

Some traders actually take the advantage as those con artists are making their own profits. In order to do this you’d have to know what you’re doing.

That’s why I’d not advise beginners to take this path.

So, how do we spot pump and dump stocks

1-Promise of big profits:

Anytime you’re being promised of big profits from a stock you should reconsider. It’s a big red flag because no one really knows when their big profits will come.

We can assume, but we cannot know really for sure of any stock’s outcome.

I do believe you’ve known that by now if you’ve been trading penny stock already, it’s not hard to see that.

2- Pump and dump stocks are penny stocks

You will never find a stock in a pump and dump list which is not a penny stock. All the pump and dump stocks are penny stocks. This should be your number one rule.

Penny stocks are the ones that are prone to those sort of manipulations. Although it’s illegal and considered to be a crime. It still happens as of today, in order not to fall prey to them you have to conduct your own research.

Don’t rely on what you’re hearing, look for your own information. According to Penny Stock Expert, only a handful of stock traders stay true to themselves when it comes to researching before trading.

It’s almost impossible to be successful trading penny stocks if research are not being done.

3- Reverse takeover

Most of the penny stocks that undergo a reverse takeover are usually being pumped somewhere along the way.

What’s a reverse takeover? It’s also known as a merger, you may’ve heard of it being called “Reverse merger” before. It’s a method used by private companies to become publicly traded.

They get this done by acquiring just enough shares to control a publicly traded company. And then those shares are used to exchange in the public company. Once this is done the private company has become a publicly traded one.

4- The flat liners

Some stocks are usually flat lined on their graphing figure. They’re stationed at one place and never make any move. All of a sudden the price start increasing out of nowhere.

Those stocks are the one you should be careful with because prices don’t just start increasing for no reason. Especially for a stock that never show any movement.

It’s considered to be a big red flag. Be very, very careful wit them!

5- Trading surge

Seeing share volume of a stock surges from 0 to over 1 million in one day should tell us something. Either they have some very good promoters out there, or they have a way to increase the volume themselves.

Don’t get fooled by them, their goal is to lose you money while they’re gaining money. They’re becoming rich at the expense of your hard earned money.

Conclusion

Pump and dump scheme is involved of artificially inflating a stock’s price to make lots of profit in return. Although it’s well recognized by now, many traders are still being preyed on by those con-artists.

From this blog, I highlighted some of the most seen signs that would signal you that a stock is being pumped.

Knowing how to spot the pump and dump stocks can save you a lot.

I know that there are so many other signals to recognize a pump and dump stock which are not listed here. Please take this time to complete this list in the comment section.

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